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					  A CITIZEN’S GUIDE TO
  THE FEDERAL BUDGET




BUDGET OF THE UNITED STATES GOVERNMENT


             Fiscal Year 2000
Table of Contents

  A Note to the Reader . . . . . . . . . . . . . . . . . . . .                                   iii
  1. What Is the Budget? . . . . . . . . . . . . . . . . . . .                                    1
  2. Where the Money Comes From—and Where It
     Goes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                               5
        Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    7
        Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   10
        “On” and “Off” Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          15

  3. How Does the Government Create a Budget? . .                                                17
        The President’s Budget. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        17
        The Budget Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       17
        Action in Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       18
        Monitoring the Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        20

  4. The Budget Surplus and Fiscal Discipline . . . . .                                          21
        Why a Budget Surplus is Important. . . . . . . . . . . . . . . . . . . . . .             23
        Surplus and Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      25
        Returning the Budget to Surplus . . . . . . . . . . . . . . . . . . . . . . .            26

  5. The President’s 2000 Budget . . . . . . . . . . . . .                                       29
        Investing in the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      29
        Improving Performance Through Better Management . . . . . . . . .                        32

  Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                             35
  List of Charts and Tables . . . . . . . . . . . . . . . . . .                                  39




                                                                                                       i
A Note to the Reader
  Next year, your Federal Government will spend nearly $1.8 trillion.
  Needless to say, that’s a lot of money. And the Government spends it on lots
  of things—on programs as large and popular as Social Security, and on
  activities as small and unknown as repairs to the National Zoo. Together,
  these programs are what make up the Federal budget.
  How much do you know about the budget? If your answer is “not much,”
  you’re not alone. In fact, hardly anybody knows everything that’s in the
  thousands of pages, and several books, that make up the budget each year.
  But we know you care a lot about how the Government spends your money.
  That’s why we created A Citizen’s Guide to the Federal Budget four years
  ago, and why we have published this fifth edition. With it, we hope to make
  the budget more accessible and understandable.
  The Guide is designed to give you a walking tour of the budget. In these
  pages, we will outline for you how the Government raises revenues and
  spends money, how the President and Congress enact the budget, why the
  budget deficit and Federal debt have been problems, and what the President
  hopes to accomplish with his 2000 budget.
  After you read these pages, we hope that you will think the tour was worth
  your time.




                                                                            iii
1. What Is the Budget?
  The Federal budget is:
  • a plan for how the Government spends your money.
    What activities are funded? How much does it spend for defense,
    national parks, the FBI, Medicare, and meat and fish inspection?
  • a plan for how the Government pays for its activities.
    How much revenue does it raise through different kinds of taxes—
    income taxes, excise taxes, and social insurance payroll taxes?
  • a plan for Government borrowing.
    If revenues are greater than spending, the Government runs a surplus.
    When there is a surplus, the Government can reduce the national debt.
  • something that affects the Nation’s economy.
    Some types of spending—such as improvements in education and
    support for science and technology—increase productivity and raise
    incomes in the future.
    Taxes, on the other hand, reduce incomes, leaving people with less
    money to spend.
  • something that is affected by the Nation’s economy.
    When the economy is doing well, people are earning more and
    unemployment is low. In this atmosphere, revenues increase and the
    deficit shrinks.
  • an historical record.
    The budget reports on how the Government has spent money in the
    past, and how that spending was financed.
  The 2000 Budget is a document that embodies the President’s budget
  proposal to Congress for fiscal 2000, the fiscal year that begins on October
  1, 1999. It reflects the President’s priorities and proposes to protect the
  budget surplus until Social Security is reformed.
  The Federal budget, of course, is not the only budget that affects the
  economy or the American people. The budgets of State and local

                                                                            1
                                                       ,
       Chart 1–1. Government Spending as a Share of GDP 1998


                                                                Total Government
                                                               Spending in the U.S.
                                                                      (29%)

                                                       100                            Federal Grants to
                                                                Spending from          State and Local
                                                        90
                     Pie 1                                     State and Local          Governments
                                             Total State 80       Revenues                    (3%)
                                                and                   (9%)
                                           Local Spending70

                                                (12%) 60
           Private           Government
            71%                 29%                     50    Spending for Direct
                                                               Federal Programs           Total Federal
                                                        40
                                                                    (17%)                   Spending
                                                        30                                    (20%)
                                                        20

                                                        10


                                                         0

    Note: Numbers do not add due to rounding.

     Total Government spending accounts for less than one-third
    of the national economy. Federal spending is about two-thirds
             of this amount, or about 20 percent of GDP.


    governments have an impact as well. While Federal Government spending
    was a little less than 20 percent of the Gross Domestic Product (or GDP,
    which measures the size of the economy) in 1998, State and local
    governments spending was about another nine percent (see Chart 1–1).
    State and local governments are independent of the Federal Government,
    and they have their own sources of revenue (taxes and borrowing). But the
    Federal Government supplements State and local revenues by making grants
    to them. Of the $989 billion that State and local governments spent in 1998,
    $230 billion came from Federal grants.
    As shown in Chart 1–2, compared to six other industrialized nations, the
    United States allocates the smallest share of its GDP to government spending
    (Federal, State, and local combined).




2
Chart 1–2.       Total Government Outlays as a Percent of GDP


60%
                                                              ITALY


           FRANCE
50%
                             GERMANY


                                      CANADA
40%                                                        UNITED KINGDOM


                       UNITED STATES

30%
                                                   JAPAN



20%
       1981     1983     1985        1987   1989     1991     1993    1995   1997
 Source: OECD, calendar year data.


The United States allocates a smaller portion of its GDP to
   government spending than any other nation shown.




                                                                                    3
2. Where the Money Comes From—
and Where it Goes
  In a typical American household, a father and mother might sit around the
  kitchen table to review the family budget. They might discuss how much they
  expect to earn each year, how much they can spend on food, shelter,
  clothing, transportation, and perhaps a vacation, and how much they might
  be able to save for their future needs.
  If they do not have enough money to make ends meet, they might discuss
  how they can spend less, such as by cutting back on restaurants, movies, or
  other entertainment. They also might consider whether to try to earn more
  by working more hours or taking another job. If they expect their shortfall to
  be temporary, they might try to borrow.


                          Chart 2–1.     Family Budgeting




         HOUSEHOLD                     TRANSPORTATION
         APPLIANCES                                             CLOTHING




                                                                            RESTAURANTS/
          HOUSING                                                          ENTERTAINMENT
                                      FOOD              EDUCATION



                      ?                                             ?
                          ?                                     ?
                              ?                             ?
                                  ?                     ?




                              SOURCES: CASH AND CREDIT


                                                                                           5
    Generally speaking, the Federal Government plans its budget much like
    families do. The President and Congress determine how much money they
    expect the Government to receive in each of the next several years, where it
    will come from, and how much to spend to reach their goals—goals for
    national defense, foreign affairs, social insurance for the elderly, health
    insurance for the elderly and poor, law enforcement, education,
    transportation, science and technology, and others.
    They decide how much spending they will finance through taxes and how
    much through borrowing. They debate how to use the budget to help the
    economy grow, or to redistribute income. And, especially lately, they debate
    how to use the budget surplus to address longer-term concerns and invest in
    the Nation’s future.
    In this chapter, we will discuss these decisions in some detail—that is, how
    the Government raises revenues and where it spends money.


                            Chart 2–2.             National Budgeting




                                                            CHILD NUTRITION
                                    ENVIRONMENTAL CLEANUP
                  CRIME
               PREVENTION




                                                                                  HEALTH CARE

               EDUCATION
                                        MILITARY
                                                             RESEARCH

           ?                                                                                ?
               ?                                                                        ?
                    ?                                                              ?
                            ?                                                 ?




                                SOURCES: TAXES AND BORROWING




6
Revenues

             Chart 2–3. The Federal Government Dollar—
                        Where It Comes From



                                                ? CIAL INS
     CORPORATE
   INCOME TAXES
        10%                             SOCIAL INSURANCE
                      CORP                PAYROLL TAXES
                                               34%
    OTHER
     4%      EXCISE




    EXCISE                                 INDIVIDUAL
              OTHER
    TAXES                                INCOME TAXES
     4%                                       48%


                                                             INDIV TAX




The money that the Federal Government uses to pay its bills—its revenues—
comes mostly from taxes. In 1998, revenues were greater than spending, and
the Government was able to reduce the national debt with the difference
between revenues and spending—that is, the surplus.
Revenues come from these sources:
• Individual income taxes will raise an estimated $900 billion in 2000, equal
  to about 10 percent of GDP.
• Social insurance payroll taxes—the fastest growing category of Federal
  revenues—include Social Security taxes, Medicare taxes, unemployment
  insurance taxes, and Federal employee retirement payments. This category
  has grown from two percent of GDP in 1955 to an estimated seven
  percent in 2000.
• Corporate income taxes, which will raise an estimated $189 billion, have
  shrunk steadily as a percent of GDP, from 4.5 percent in 1955 to an
  estimated 2.1 percent in 2000.



                                                                           7
                           Table 2–1.                   Revenues By Source—Summary
                                                              (In billions of dollars)

                                                                                                Estimate
                                                                    1998
                            Source
                                                                    Actual   1999        2000     2001     2002   2003 2004

    Individual income taxes . . . . . . . . . . . . . . .            829      869        900       912     943    971 1,018
    Corporate income taxes . . . . . . . . . . . . . . .             189      182        189       197     203    212   221
    Payroll taxes. . . . . . . . . . . . . . . . . . . . . . . .     572      609        637       660     686    712   739
    Excise taxes . . . . . . . . . . . . . . . . . . . . . . . .      58        68        70         71     72     74    75
    Estate and gift taxes . . . . . . . . . . . . . . . . . .         24        26        27        28      30     32    34
    Customs duties . . . . . . . . . . . . . . . . . . . . .          18        18        18        20      21     23    25
    Miscellaneous receipts . . . . . . . . . . . . . . . .            33        35        42        45      50     52    53
        Total receipts . . . . . . . . . . . . . . .               1,722 1,806       1,883      1,933 2,007 2,075 2,166
    Notes: The revenues listed in this table do not include revenues from the Government’s business-like activities—
    i.e., the sale of electricity and fees at national parks. The Government counts these revenues on the spending
    side of the budget, deducting them from other spending to calculate its outlays for the year.
    Numbers may not add to the totals because of rounding.




    • Excise taxes apply to various products, including alcohol, tobacco,
      transportation fuels, and telephone services. The Government earmarks
      some of these taxes to support certain activities—including highways and
      airports and airways—and deposits others in the general fund.
    • The Government also collects miscellaneous revenues—e.g., customs
      duties, Federal Reserve earnings, fines, penalties, and forfeitures.




8
                     Chart 2–4.                Composition of Revenues
     PERCENT

     100
                     SOCIAL INSURANCE TAXES


      80
                    EXCISE TAXES



      60           CORPORATION INCOME TAXES



      40

                     INDIVIDUAL INCOME TAXES

      20



                                             OTHER
        0
            1956       1962           1968       1974      1980     1986      1992       1998    2004

                                OTHER
Between 1960 and 1998, payroll taxes have increased substantially as
a percent of total revenues, and corporate income taxes have declined,
     but individual income taxes have remained roughly constant.


 Chart 2–5.           Revenues as a Percent of GDP—Comparison With
                               Other Countries

        55%


        50%             FRANCE

                                             GERMANY
        45%
                          UNITED KINGDOM
                                                                  CANADA
        40%

                              ITALY
        35%
                                         JAPAN
        30%
                                                        UNITED STATES

        25%


        20%
                   1981       1983      1985     1987     1989    1991     1993   1995    1997
            Source: OECD, calendar year data.


 The United States and Japan have the lowest revenues as a percent
            of GDP of the seven countries shown above.

                                                                                                        9
     Spending

     As we have said, the Federal Government will spend nearly $1.8 trillion1, and
     have a surplus of over $117 billion in 2000, which we divided into nine large
     categories as shown in Chart 2–6.
     • The largest Federal program is Social Security, which will provide monthly
       benefits to nearly 45 million retired and disabled workers, their dependents,
       and survivors. It accounts for 22 percent of your Federal dollar (or 23
       percent of all Federal spending).
     • Medicare, which will provide health care coverage for over almost 40
       million elderly Americans and people with disabilities, consists of Part A
       (hospital insurance) and Part B (insurance for physician costs and other
       services). Since its birth in 1965, Medicare has accounted for an ever-

                     Chart 2–6. The Federal Government Dollar—
                                   Where It Goes


                DISCRETIONARY


                                              NATIONAL DEFENSE
                                                    15%
                                                                                    SOCIAL SECURITY
                                                                                         22%


                             NON-DEFENSE
                             DISCRETIONARY                                                           NET INTEREST
                                  17%                                                                    11%


                                                                                               MEDICARE
                                                                                                 11%
                                                                                  MEDICAID
                  RESERVE PENDING                                                   6%
                   SOCIAL SECURITY
                      REFORM                                                                                       MANDATORY
                         6%
                                     OTHER MEANS-TESTED
                                                          OTHER
                                       ENTITLEMENTS*
                                                        MANDATORY
                                             6%
                                                           6%


                             *Means-tested entitlements are those for which eligibility is based on income. The Medicaid
         * Means-tested entitlements are those for which eligibility is based on income. The Medicaid program
                               program is also a means-tested entitlement.

         is also a means-tested entitlement.


     1
       In calculating Federal spending, the Government deducts collections (revenues) generated by
     the Government’s business-like activities, such as fees to national parks. These collections will
     total an estimated $216 billion in 2000. Without them, spending would total an estimated $2.0
     trillion in 2000, not $1.8 trillion.


10
  growing share of spending. In 2000 it will comprise 11 percent of your
  Federal dollar (or 12 percent of all Federal spending).
• Medicaid, in 2000, will provide health care services to almost 34 million
  Americans, including the poor, people with disabilities, and senior citizens
  in nursing homes. Unlike Medicare, the Federal Government shares the
  costs of Medicaid with the States, paying between 50 and 83 percent of
  the total (depending on each State’s requirements). Federal and State costs
  are growing rapidly. Medicaid accounts for six percent of your Federal
  dollar (also six percent of the budget).
• Other means-tested entitlements provide benefits to people and families
  with incomes below certain minimum levels that vary from program to
  program. The major means-tested entitlements are Food Stamps and food
  aid to Puerto Rico, Supplemental Security Income, Child Nutrition, the
  Earned Income Tax Credit, and veterans’ pensions. This category will
  account for an estimated six percent of your Federal dollar (also six percent
  of the budget).
• The remaining mandatory spending, which mainly consists of Federal
  retirement and insurance programs, unemployment insurance, and
  payments to farmers, comprises six percent of your Federal dollar (also six
  percent of the budget).
• National defense discretionary spending will total an estimated $275 billion
  in 2000, comprising nearly 15 percent of your Federal dollar (and 16
  percent of the budget).
• Non-defense discretionary spending—a wide array of programs that
  include education, training, science, technology, housing, transportation,
  and foreign aid—has shrunk as a share of the budget from 23 percent in
  1966 to an estimated 18 percent in 2000 (or 17 percent of your Federal
  dollar).
• Interest payments, primarily the result of previous budget deficits, averaged
  seven percent of Federal spending in the 1960s and 1970s. But, due to
  the large budget deficits that began in the 1980s that share quickly doubled
  to 15 percent. Since the budget is now in surplus, interest payments are
  estimated to drop to 12 percent of the budget in 2000 (11 percent of your
  Federal dollar).
• Six percent of your Federal dollar (the budget surplus) will not be spent.
  The President has proposed that any surplus be reserved until a plan to
  save Social Security has been enacted.

                                                                           11
                                           Table 2–2. Spending Summary
                                                                 (In billions of dollars)

                                                                                                    Estimate
                                                                       1998
                                                                       Actual    1999       2000      2001     2002    2003 2004

     Budget Policy with Social Security
      reform:
        Outlays:
           Discretionary:
              Department of Defense . . . . . . . . . .                  258    265         262        269      279     291   301
              Non-DoD discretionary . . . . . . . . . . .                297    317         330        341      339     338   338
              Priority initiatives . . . . . . . . . . . . . . .      ...... ......      ......          2        4       7    10
                 Subtotal, discretionary. . . . . . . . . .             555       581        592       612      623     636   649
           Mandatory:
            Programmatic:
              Social Security. . . . . . . . . . . . . . . .            376       389        405       424      444     465   487
              Medicare and Medicaid. . . . . . . . .                    291       311        328       350      363     391   416
              Means-tested entitlements (except
                Medicaid) . . . . . . . . . . . . . . . . .              99       107        112       118      124     129   134
              Deposit insurance. . . . . . . . . . . . .                 −4        −5         −2        −2       −1      −*     1
              Other . . . . . . . . . . . . . . . . . . . . .            92       117        116       118      115     125   131
                   Subtotal, mandatory . . . . . . . . .                855       919        959     1,007     1,044   1,110 1,170
              Net interest . . . . . . . . . . . . . . . . . . .        243       227        215       207       197     188   179
                 Subtotal, mandatory and net
                    interest . . . . . . . . . . . . . . . . . . .     1,098     1,146      1,174    1,214     1,241   1,297 1,349
        Total, outlays . . . . . . . . . . . . . . . . . . .          1,653 1,727        1,766      1,826 1,863 1,934 1,998
     Receipts . . . . . . . . . . . . . . . . . . . . . . . . .       1,722 1,806        1,883      1,933 2,007 2,075 2,166
     Resources contingent upon Social
        Security reform:
           Department of Defense . . . . . . . . . . . .              ......    ......   ......        −10      −17     −13   −15
           Non-DoD discretionary . . . . . . . . . . . .              ......    ......   ......        −15      −20     −16    −9
           Priority initiatives. . . . . . . . . . . . . . . . .      ......    ......   ......         −2       −4      −7   −10
           Related debt service. . . . . . . . . . . . . . .          ......    ......   ......         −1       −2      −4    −6
              Total . . . . . . . . . . . . . . . . . . . . . . . .   ...... ......      ......        −27      −43     −41   −40
     Reserve pending Social Security
       reform . . . . . . . . . . . . . . . . . . . .                    69        79       117       134      187     182    208
     Surplus . . . . . . . . . . . . . . . . . . . . .                    0         0          0          0       0       0     0

     MEMORANDUM:
        Discretionary totals if no Social Security re-
        form is enacted, net of designated offsets.                     555       581        574       573      568     584   600

     * $500 million or less.




12
                            Table 2–3. Total Spending by Function
                                                     (Outlays, in billions of dollars)

                                                                                             Estimate
                                                                  1998
                   Function
                                                                  Actual   1999    2000        2001     2002   2003 2004

National defense:
   Department of Defense-Military . . . . . . . .                  256      264     261         269     278    290    300
   Other. . . . . . . . . . . . . . . . . . . . . . . . . . .       12       13      13           14     14     14     14
Total, national defense . . . . . . . . . . . . . . . .            268      277     274         282     292    304    314
International affairs. . . . . . . . . . . . . . . . . . .          13       15      16          17      18     18    18
General science, space, and technology . . .                        18       19      19          19      19     19     19
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . .          1       ∗      −2           −1     −1     −1     −1
Natural resources and environment . . . . . . .                     22       24      24           24     24     24     24
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . .        12       21      15           13     11     10     10
Commerce and housing credit . . . . . . . . . .                       1       *          6         8      9     10     10
Transportation . . . . . . . . . . . . . . . . . . . . . .          40       43      46          49      50     52    53
Community and regional development . . . .                          10       10      10          10      10      9     9
Education, training, employment, and
  social services . . . . . . . . . . . . . . . . . . . . .         55      60       63          68      67     69    70
Health . . . . . . . . . . . . . . . . . . . . . . . . . . . .     131      143     152         163     173     185   197
Medicare . . . . . . . . . . . . . . . . . . . . . . . . . .       193      205     217         231     235     252   266
Income security . . . . . . . . . . . . . . . . . . . . .          233     243      258         267     275    282    291
Social security . . . . . . . . . . . . . . . . . . . . . .        379     393      409         427     447    468    491
Veterans benefits and services . . . . . . . . . . .                42       44      44          45      46     47     48
Administration of justice . . . . . . . . . . . . . . .             23       24      28          29      28     28    28
General government . . . . . . . . . . . . . . . . .                13      15       14          15      15     15    15
Net interest . . . . . . . . . . . . . . . . . . . . . . . .       243      227     215         206     195    183    173
Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3          3      −27     −40    −34    −29
Undistributed offsetting receipts . . . . . . . . .                −47      −40     −46         −45     −51    −47    −48
   Total . . . . . . . . . . . . . . . . . . . . . .             1,653 1,727      1,766      1,799 1,820 1,893 1,958

* $500 million or less.
Note: Spending that is shown as a minus means that receipts exceed outlays.
Note: Numbers may not add to the totals because of rounding.




                                                                                                                            13
                    Table 2–4.                    Discretionary Spending by Agency
                                                     (Outlays, in billions of dollars)

                                                                                             Estimate
                                                                   1998
                          Agency
                                                                   Actual   1999   2000        2001     2002   2003 2004

Legislative Branch . . . . . . . . . . . . . . . . . . .               2       2         3         3      3      3      3
Judicial Branch. . . . . . . . . . . . . . . . . . . . . .             3       3         4         4      4      4      4
Agriculture. . . . . . . . . . . . . . . . . . . . . . . . .         16       17     16           15     15     15     15
Commerce. . . . . . . . . . . . . . . . . . . . . . . . .              4       5         7         5      5      5      5
Defense-Military . . . . . . . . . . . . . . . . . . . . .          258      265    262         269     279    291    301
Education . . . . . . . . . . . . . . . . . . . . . . . . .          26       29     32           35     35     35     35
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . .         17       17     18           18     18     18     18
Health and Human Services . . . . . . . . . . . .                    35       39     42          43      43     43     43
Housing and Urban Development. . . . . . . .                         33       33     34          34      32     31     30
Interior . . . . . . . . . . . . . . . . . . . . . . . . . . .         7       8         8         9      9      9      9
Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . .      15       16     19           20     19     19     19
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . .        10       11     11           11     11     12     12
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        5       6         6         7      7      6      7
Transportation . . . . . . . . . . . . . . . . . . . . . .           37       40     43          46      48     49     51
Treasury. . . . . . . . . . . . . . . . . . . . . . . . . . .        11       12     12           13     13     13     13
Veterans Affairs . . . . . . . . . . . . . . . . . . . . .           18      19      19          19      19     19     19
Corps of Engineers. . . . . . . . . . . . . . . . . . .                4       4         4         4      4      4      4
Other Defense Civil Programs . . . . . . . . . . .                     *       *         *         *      *       *     *
Environmental Protection Agency . . . . . . . .                        7       7         7         8      7      7      7
Executive Office of the President . . . . . . . . .                    *       *         *         *      *       *     *
Federal Emergency Management Agency . .                                3       3         3         3      2      2      2
General Services Administration. . . . . . . . . .                     1       *         *         *      *       *     *
International Assistance Programs . . . . . . . .                    11       12     12           12     13     12     12
National Aeronautics and Space
Administration . . . . . . . . . . . . . . . . . . . . . .           14       14     13          13      13     14     14
National Science Foundation . . . . . . . . . . .                      3       3         4         4      4      4      4
Office of Personnel Management . . . . . . . .                         *       *         *         *       *      *     *
Small Business Administration . . . . . . . . . . .                    1       1         1         1      1      1      1
Social Security Administration . . . . . . . . . . .                   5       6         6         6      6      6      6
Other Independent Agencies . . . . . . . . . . .                       6       6         6         6      7      7      7
Allowances . . . . . . . . . . . . . . . . . . . . . . . .        ......       3         3      −24     −36     -29    -24
Undistributed offsetting receipts . . . . . . . . .               ...... ......      −3            1       1     −*    −*
   Total . . . . . . . . . . . . . . . . . . . . . .                555     581    592         586      582    600    615

* $500 million or less.
Note: Discretionary spending is appropriated by the Congress each year, in contrast with mandatory
      spending, which is automatic under permanent law. For a more complete discussion of
      discretionary spending, see ``Action in Congress’’ in Chapter 3.
      Spending that is shown as a minus means that receipts exceed outlays.
Note: Numbers may not add to the totals because of rounding.



14
“On” and “Off” Budget

From time to time, you may hear about programs that are “off-budget,”
meaning that the Government categorizes them separately from other
programs.
Specifically, the law requires that the spending and revenues of two Federal
programs, Social Security and the Postal Service, be excluded from the
budget totals—that is, categorized as “off-budget.” Therefore, the budget
displays “on-budget,” “off-budget,” and “unified budget” totals to satisfy this
legal requirement.
The unified budget is the most useful display of the Government’s finances;
it is vital in calculating how much the Government has to borrow.
The “off-budget” category is designed to give special status to certain
programs. Over the years, the Government has placed numerous programs
“off-budget,” then returned them to the unified budget. But the mere listing
of programs as “off-budget” does not, by itself, protect them from the budget
process—e.g., Administration and congressional review, possible cuts, and
hiring and procurement rules.
Chart 2–7 illustrates the relationship between on- and off-budget items, and
the unified budget.

        Chart 2–7. On- and Off-Budget Deficit Projections
      DOLLARS IN BILLIONS


      300

      250

      200

      150

      100                                        UNIFIED BUDGET SURPLUS



       50

         0
                                          BUDGET DEFICIT/SURPLUS EXCLUDING
                                                   "OFF-BUDGET" ITEMS:
      -50                                 SOCIAL SECURITY AND POSTAL SERVICE 1


          1998              1999   2000      2001            2002           2003   2004


                                                                                          15
3. How Does the Government Create
a Budget?

  The President and Congress both play major roles in developing the Federal
  budget.


  The President’s Budget

  The law requires that, by the first Monday in February, the President submit
  to Congress his proposed Federal budget for the next fiscal year, which
  begins October 1.

  The White House’s Office of Management and Budget (OMB) prepares the
  budget proposal, after receiving direction from the President and consulting
  with his senior advisors and officials from Cabinet departments and other
  agencies.

  The President’s budget—which typically includes a main book and several
  accompanying books1—covers thousands of pages and provides reams of
  details.


  The Budget Process

  Through the budget process, the President and Congress decide how much
  to spend and tax in any one fiscal year. More specifically, they decide how
  much to spend on each activity, ensure that the Government spends no more
  and spends it only for that activity, and report on that spending at the end of
  each budget cycle.

  The President’s budget is his plan for the next year. But it’s just a proposal.
  After receiving it, Congress has its own budget process to follow. Only after
  the Congress passes, and the President signs, the required spending bills has
  the Government created its actual budget.
  1
    They are the main budget book, entitled, Budget of the United States Government: Fiscal
  Year 2000, as well as Analytical Perspectives, Appendix, Historical Tables, and A Citizen’s
  Guide to the Federal Budget, which you are now reading.


                                                                                         17
     For fiscal 2000—that is, October 1, 1999 to September 30, 2000—the
     major steps in the budget process are outlined in Chart 3–1.

                  Chart 3–1.          Major Steps in the Budget Process

     Formulation of the President’s    Executive Branch agencies develop      February–December
     budget for fiscal 2000.           requests for funds and submit them     1998
                                       to the Office of Management and
                                       Budget. The President reviews the
                                       requests and makes the final decisions
                                       on what goes in his budget.
     Budget preparation and trans-     The budget documents are prepared    December 1998–
     mittal.                           and transmitted to Congress.         February 1999
     Congressional action on the       Congress reviews the                 March–September
     budget.                           President’s budget, develops its     1999
                                       own budget, and approves
                                       spending and revenue bills.
     The fiscal year begins.                                                October 1, 1999
     Agency program managers execute the budget provided in law.            October 1, 1999–
                                                                            September 30,
                                                                            2000
     Data on actual spending and receipts for the completed fiscal year     October–November
     become available.                                                      2000




     Action in Congress

     Congress first must pass a “budget resolution”—a framework within which
     the Members will make their decisions about spending and taxes. It includes
     targets for total spending, total revenues, and the deficit, and allocations
     within the spending target for the two types of spending—discretionary and
     mandatory—explained below.
     • Discretionary spending, which accounts for one-third of all Federal
       spending, is what the President and Congress must decide to spend for the
       next year through the 13 annual appropriations bills. It includes money for
       such activities as the FBI and the Coast Guard, for housing and education,
       for space exploration and highway construction, and for defense and
       foreign aid.
     • Mandatory spending, which accounts for two-thirds of all spending, is
       authorized by permanent laws, not by the 13 annual appropriations bills. It
       includes entitlements—such as Social Security, Medicare, veterans’


18
 benefits, and Food Stamps—through which individuals receive benefits
 because they are eligible based on their age, income, or other criteria. It
 also includes interest on the national debt, which the Government pays to
 individuals and institutions that hold Treasury bonds and other Government
 securities. The President and Congress can change the law in order to
 change the spending on entitlements and other mandatory programs—but
 they don’t have to.

Think of it this way: For discretionary programs, Congress and the President
must act each year to provide spending authority. For mandatory programs,
they may act in order to change the spending that current laws require.

Currently, the law imposes a limit, or “cap,” through 2002 on total annual
discretionary spending. Within the cap, however, the President and Congress
can, and often do, change the spending levels from year to year for the
thousands of individual Federal spending programs.

In addition, the law requires that legislation that would raise mandatory
spending or lower revenues—compared to existing law—be offset by
spending cuts or revenue increases. This requirement, called “pay-as-you-
go,” is designed to prevent new legislation from increasing the deficit.

Once Congress passes the budget resolution, it turns its attention to passing
the 13 annual appropriations bills and, if it chooses, “authorizing” bills to
change the laws governing mandatory spending and revenues.

Congress begins by examining the President’s budget in detail. Scores of
committees and subcommittees hold hearings on proposals under their
jurisdiction. The House and Senate Armed Services Authorizing Committees,
and the Defense and Military Construction Subcommittees of the
Appropriations Committees, for instance, hold hearings on the President’s
defense plan. If the President’s budget proposed changes in taxes, the House
Ways and Means and the Senate Finance Committees would hold hearings.
The Budget Director, Cabinet officers, and other Administration officials
work with Congress as it accepts some of the President’s proposals, rejects
others, and changes still others. Congressional rules require that these
committees and subcommittees take actions that reflect the budget
resolution.

If you read through the President’s budget, the budget resolution, or the
appropriations or authorizing bills that Congress drafts, you will notice that
the Government measures spending in two ways—”budget authority” and
“outlays.”

                                                                           19
     Budget authority (or BA) is what the law authorizes the Federal Government
     to spend for certain programs, projects, or activities. What the Government
     actually spends in a particular year, however, is an outlay. To see the
     difference, consider what happens when the Government decides to build a
     space exploration system.

     The President and Congress may agree to spend $1 billion for the space
     system. Congress appropriates $1 billion in BA. But the system may take 10
     years to build. Thus, the Government may spend $100 million in outlays in
     the first year to begin construction and the remaining $900 million over the
     next nine years as construction continues.


     Monitoring the Budget

     Once the President and Congress approve spending, the Government
     monitors the budget through:

     • agency program managers and budget officials, including the Inspectors
       General, or IGs;

     • OMB;

     • congressional committees; and

     • the General Accounting Office, an auditing arm of Congress.

     This oversight is designed to:

     • ensure that agencies comply with legal limits on spending, and that they use
       budget authority only for the purposes intended;

     • see that programs are operating consistently with legal requirements and
       existing policy; and, finally,

     • ensure that programs are well managed and achieving the intended results.

     The Government has paid more attention to good management of late,
     through the work of Vice President Gore’s National Partnership for
     Reinventing Government and implementation of the 1993 Government
     Performance and Results Act. This law is designed to improve Government
     programs by using better measurements of their results in order to evaluate
     their effectiveness.

20
4. The Budget Surplus and Fiscal
Discipline
  In 1998 the Federal budget reported a surplus of $69 billion, the first surplus
  since 1969, and reduced Federal debt held by the public by over $50 billion.
  With continued prudent fiscal policies, the budget can remain in surplus for
  many years. The turnaround from deficit to surplus can be attributed to fiscal
  discipline and strong economic growth. The change from deficit to surplus is
  an important milestone.
  Put simply, a surplus occurs when revenues exceed spending in any year—
  just as a deficit occurs when spending exceeds revenues. Generally, to finance


       Chart 4–1.                Past and Future Budget Deficits or Surplus


                 DOLLARS IN BILLIONS

                 250

                 200
                                                                             PROJECTED
                 150
       SURPLUS




                 100

                  50

                    0
                                              ACTUAL
                  -50

                 -100
       DEFICIT




                 -150

                 -200

                 -250

                 -300

                         1940          1948   1956     1964   1972   1980   1988   1996   2004




  Deficits began increasing dramatically in the 1980s, but have
                       now been reversed.




                                                                                                 21
past deficits, the Treasury has borrowed money. With certain exceptions, the
debt is the sum total of our deficits, minus our surplus, over the years.
The Government incurred its first deficit in 1792, and it generated 70 annual
deficits between 1900 and 1997.
Chart 4–1 provides the history of budget surplus and deficits since 1940.
For most of the Nation’s history, deficits were the result of either wars or
recessions. Wars necessitated major increases in military spending, while
recessions reduced Federal tax revenues from businesses and individuals.
The Government generated deficits during the War of 1812, the recession of
1837, the Civil War, the depression of the 1890s, and World War I. Once
the war ended or the economy began to grow, the Government followed its
deficits with budget surplus, with which it paid down the debt.
Deficits returned in 1931 and remained for the rest of the decade—due to
the Great Depression and the spending associated with President Roosevelt’s
New Deal. Then, World War II forced the Nation to spend unprecedented
amounts on defense and to incur corresponding unprecedented deficits.

                  Chart 4–2.          Outlays as a Percent of GDP
     PERCENT


     25


                                                                    NET INTEREST
     20

                                                                   SOCIAL SECURITY

     15
                                                               MEDICARE/MEDICAID


                                                               OTHER MANDATORY
     10


                                                               NATIONAL DEFENSE

      5

                                                           NON-DEFENSE DISCRETIONARY


      0
          1965   1968   1971   1974   1977   1980   1983    1986      1989     1992   1995   1998


 Between 1965 and 1998, spending on Social Security, Medicare and
 Medicaid, and interest as a percentage of GDP grew, while spending
                           on defense fell.

22
Since then—with Democratic and Republican Presidents, Democratic and
Republican Congresses—the Government has balanced its books only nine
times, most recently last year.
Nevertheless, the deficits before 1981 paled in comparison to what followed.
That year, the Government cut income tax rates and greatly increased
defense spending, but it did not cut non-defense programs enough to make
up the difference. Also, the recession of the early 1980s reduced Federal
revenues, increased Federal outlays for unemployment insurance and similar
programs that are closely tied to economic conditions, and forced the
Government to pay interest on more national debt at a time when interest
rates were high. As a result, the deficit soared.
Why have we been able to move from deficit to surplus? Because spending
growth has been restrained. Outlays are growing slower and revenues are
holding steady.
Revenues have stayed relatively constant, at around 17 to 21 percent of
GDP, since the 1960s. In that time, however, outlays grew from about 17
percent of GDP in 1965 to nearly 24 percent in 1983 before falling below
20 percent today.
Since 1983, spending had been reduced or held constant as percent of GDP
across a wide variety of programs. The most significant reduction has
occurred in discretionary spending, which has fallen from 10.3 percent to
6.6 percent of GDP. Combined spending on social security and net interest
has remained roughly constant at about 7-1/2 percent of GDP since 1983.
A similar path has been followed in the rest of mandatory spending in total,
but only because the growth in Medicare and Medicaid has been offset by
declines in other mandatory spending (see Chart 4–2).

Why a Budget Surplus is Important


As Chart 4–3 illustrates, this Nation has a good record when compared to
the recent history of the six other major developed economies. (To make
accurate comparisons with the governments of other nations, the U.S. data
include the activities of State and local governments.)

Should we worry about the possibility of a return to budget deficits?
The 2000 Budget forecasts surplus for decades to come, if we maintain the
policy of fiscal discipline and strategic investments in the American people.

                                                                          23
      Chart 4–3. Total Government Surplus or Deficit as a Percent
                              of GDP

                      -15%


                                     ITALY                                    UNITED
                                                                             KINGDOM
                      -10%
           DEFICITS




                                    CANADA                  FRANCE

                       -5%           UNITED STATES




                             GERMANY
                       0%
           SURPLUS




                                                        JAPAN

                       5%
                             1981    1983    1985    1987   1989   1991   1993   1995   1997
           Source: OECD, calendar year data.


        Of the seven nations shown above, only the United States
         and Canada eliminated their total Government budget
                            deficits in 1997.


     We must do all we can to keep the days of deficits in the past. Budget deficits
     force the Government to borrow money in the private capital markets. That
     borrowing competes with (1) borrowing by businesses that want to build
     factories and machines that make workers more productive and raise
     incomes, and (2) borrowing by families who hope to buy new homes, cars,
     and other goods. The competition for funds tends to produce higher interest
     rates.
     Deficits increase the Federal debt and, with it, the Government’s obligation
     to pay interest. The more it must pay in interest, the less it has available to
     spend on education, law enforcement, and other important services, or the
     more it must collect in taxes—forever after. As recently as 1997, the
     Government spent over 15 percent of its budget to pay interest, in contrast
     to a projected 12 percent for 2000. Continuing surplus will reduce these
     interest payments further in future years.




24
In the end, the surplus is a decision about our future. We can provide a solid
foundation for future generations, just as parents try to do within a family.
For a Nation, this means a strong economy and low interest rates and debt.
Alternatively, we can generate large deficits and debt for those who come
after us.

Surplus and Debt
If the Government incurs a surplus, it generally repays debt held by the public.
Table 4–1 summarizes the relationship between the budget surplus or deficit
and the repayment of Federal debt.
Federal borrowing involves the sale, to the public, of notes and bonds of
varying sizes and time periods until maturity. The cumulative amount of
borrowing from the public—i.e., the debt held by the public—is the most
important measure of Federal debt because it is what the Government has
borrowed in the private markets over the years, and it determines how much
the Government pays in interest to the public.
Debt held by the public was $3.7 trillion at the end of 1998—roughly the net
effect of deficits and surplus over the last 200 years. Debt held by the public
does not include debt the Government owes itself—the total of all trust fund
surplus and deficits over the years, like the Social Security surplus, which the
law says must be invested in Federal securities.
Because of the progress in eliminating the budget deficit, the debt held by the
public has been reduced for the first time in 29 years.


          Table 4–1.                 Federal Government Financing and Debt
                                                     (in billions of dollars)
                                                         1998                        Estimate
                                                         Actual   1999     2000       2001      2002    2003    2004
Federal Government financing:
  Budget surplus . . . . . . . . . . . . . . . . . . .     69       79      117        134       187     182     208
  Other means of financing . . . . . . . . . . .          −18      −29      −19         −17      −17     −16      −15
    Repayment of debt held by the public                   51       50          98     117       170     166     193
Federal Government debt:
  Debt held by the public . . . . . . . . . . . . 3,720           3,670   3,572       3,455     3,285   3,119   2,926
  Debt held by government accounts. . . . 1,759                   1,945   2,140       2,326     2,530   2,736   2,948
    Gross Federal debt . . . . . . . . . . . . . . 5,479          5,615   5,711       5,781     5,815   5,856   5,874
  Debt subject to legal limit . . . . . . . . . . . 5,439         5,577   5,674       5,745     5,780   5,821   5,842
Note: Numbers may not add to the totals because of rounding.



                                                                                                                  25
     The sum of debt held by the public and debt the Government owes itself is
     called Gross Federal Debt. At the end of 1998, it totaled $5.5 trillion.
     Another measure of Federal debt is debt subject to legal limit, which is similar
     to Gross Federal Debt. When the Government reaches the limit, it loses its
     authority to borrow more to finance its spending; then, the President and
     Congress must enact a law to increase the limit. Because the budget has
     returned to surplus and debt is being reduced, there will be no need to
     increase the statutory limit in 2000.
     The Government’s ability to finance its debt is tied to the size and strength of
     the economy, or GDP. Debt held by the public was 44 percent of GDP at the
     end of 1998. As a percentage of GDP, debt held by the public was highest
     at the end of World War II, at 109 percent, then fell to 24 percent in 1974
     before gradually rising to a peak of 50 percent in the middle 1990s.
     That decline, from 109 to 24 percent, occurred because the economy grew
     faster than the debt accumulated; debt held by the public rose from $242
     billion to $344 billion in those years, but the economy grew faster.
     Individuals and institutions in the United States hold two-thirds of debt held
     by the public. The rest is held in foreign countries.


     Returning the Budget to Surplus

     Ever since the deficit soared in the early 1980s, successive Presidents and
     Congresses have tried to cut it. Until recently, they met with only limited
     success.
     In the early 1980s, President Reagan and Congress agreed on a large tax cut,
     but could not agree about cutting spending; the President wanted to cut
     domestic spending more than Congress, while Congress sought fewer
     defense funds than the President wanted. They wound up spending more on
     domestic programs than the President wanted, and more on defense than
     Congress wanted. At the same time, a recession led to more spending to aid
     those affected by the recession, and reductions in tax revenues due to lower
     incomes and corporate profits.
     By 1985, both sides were ready for drastic measures. That year, they enacted
     the Balanced Budget and Emergency Deficit Control Act. It set annual deficit
     targets for five years, declining to a balanced budget in 1991. If necessary,
     GRH required across-the-board cuts in programs to comply with the deficit
     targets.

26
Faced with the prospect of huge spending cuts in 1987, however, the
President and Congress amended the law, postponing a balanced budget until
1993. The President and Congress never achieved those revised targets, in
part because of the extraordinary costs of returning the Nation’s savings and
loan industry to a sound financial footing.
By 1990, President Bush and Congress enacted spending cuts and tax
increases that were designed to cut the accumulated deficits by about $500
billion over five years. They also enacted the Budget Enforcement Act
(BEA)—rather than set annual deficit targets. The BEA was designed to limit
discretionary spending while ensuring that any new entitlement programs or
tax cuts did not make the deficit worse.
First, the BEA set annual limits on total discretionary spending for defense,
international affairs, and domestic programs. Second, it created ``pay-as-you-
go’’ rules for entitlements and taxes: those who proposed new spending on
entitlements or lower taxes were forced to offset the costs by cutting other
entitlements or raising other taxes.
For what it was designed to do, the law worked. It did, in fact, limit
discretionary spending and force proponents of new entitlements and tax cuts
to find ways to finance them. But the deficit, which Government and private
experts said would fall, actually rose.
Why? Because the recession of the early 1990s reduced individual and
corporate tax revenues and increased spending that is tied to economic
fluctuations. Federal health care spending also continued to grow rapidly.
In 1993, President Clinton and the Congress made another effort to cut the
deficit. They enacted a five-year deficit reduction package of spending cuts
and higher revenues. The law was designed to cut the accumulated deficits
from 1994 to 1998 by about $500 billion. The new law extended the limits
on discretionary spending and the “pay-as-you-go’’ rules.
Although the 1993 plan exceeded all expectations in reducing the deficit, the
task of reaching balance would require one final push. That would come with
the historic 1997 Balanced Budget Act (BBA).
Originally designed to balance the budget by 2002, the BBA provided for
$247 billion in savings over five years. It also extended the solvency of
Medicare’s trust fund for at least 10 years while providing for the largest
investment in higher education since the G.I. Bill in 1945, the largest
investment in children’s health care since the creation of Medicaid in 1965,
and a $500-per-child tax credit for about 27 million working families.

                                                                           27
     Clearly, the President’s deficit reduction efforts have paid off. The deficit fell
     from $290 billion in 1992 to a surplus of $69 billion in 1998.
     The President is now proposing to reserve the surplus until Social Security is
     reformed. His plan for reform uses 62 percent of the projected unified budget
     surplus of the next 15 years to put the Social Security system on sound
     financial footing well into the next century. In 2000 the challenge for both
     the President and the Congress is to maintain fiscal discipline and reach
     comprehensive Social Security reform while continuing to invest in the
     American people. The next chapter describes the President’s plans for
     achieving that goal.




28
5. THE PRESIDENT’S 2000 BUDGET

  The President’s 2000 budget promises the third balanced budget of this
  Administration. With it, the Nation’s fiscal house is in order and we are
  prepared to meet the challenges of the next century. It continues on the path
  the President has followed for the past six years of maintaining fiscal
  discipline and investing wisely in our Nation’s priorities.

  It invests in education and training so Americans can make the most of this
  economy’s opportunities. It invests in health and the environment to improve
  our quality of life. It invests in our security at home and abroad, strengthens
  law enforcement and provides our Armed Forces with the resources they
  need to safeguard our national interests in the next century.

  The President’s budget makes these investments while maintaining the fiscal
  discipline that allowed the Federal Government to record its first surplus in a
  generation last year. The budget forecasts that the Government will produce
  a surplus again this year, and will continue to do so for decades to come. Our
  success in eliminating the budget deficit proves that we are capable of
  fulfilling great responsibilities, and there is now every reason for us to rise to
  the next challenge. The President believes it is now time to work together to
  save Social Security.


  Investing in the Future

  In his State of the Union address, the President proposed a framework for a
  comprehensive, bipartisan solution to the long-term financing problems of
  Social Security. The President’s plan proposes using 62 percent of the
  unified budget surplus of the next 15 years to strengthen Social Security. It
  would tap the power of financial markets by investing roughly one-fifth of the
  surplus dedicated to Social Security in private financial instruments, including
  corporate equities. This proposal would substantially improve the program’s
  fiscal position, strengthening it until the middle of the next century. Then, in
  a bipartisan effort envisioned by the national dialogue of the last year, the
  President is urging Congress to join him to make the difficult but achievable
  choices to save Social Security until 2075.



                                                                                29
     Once Social Security is on sound financial footing, the President proposes
     saving and improving Medicare, the Federal program that finances health
     care for millions of seniors and disabled Americans. The President’s
     framework will reserve 15 percent of the projected budget surplus of the next
     15 years for Medicare, ensuring that its trust fund is secure for 20 years.
     The President is also committed to helping all Americans save and invest so
     that they will have additional sources of income in retirement. Dedicating just
     over 10 percent of the surplus of the next 15 years to Universal Savings
     Accounts will help Americans save for the future by allowing them to invest
     as they choose and receive matching contributions.
     And looking ahead to the Nation’s other vital needs that will arise in the
     future, the President’s framework will reserve 11 percent of the projected
     surplus for military readiness, education, and other critical domestic priorities.
     The President’s budget builds on efforts to invest in the skills of the American
     people. It continues his policy of helping working families with their basic
     needs—raising their children, sending them to college, and expanding access
     to health care. It also invests in education and training, the environment,
     science and technology, law enforcement, and other priorities to help raise
     the standard of living and quality of life of Americans.
     In this budget, the President is proposing major initiatives that will continue
     his investments in high-priority areas—from helping working families with
     their child care expenses to allowing Americans from 55 to 65 to buy into
     Medicare; from helping States and school districts recruit and prepare
     thousands more teachers and build thousands more classrooms to making
     every effort to fight tobacco and its use among young people.
     For six years, the President has sought to help working families balance the
     demands of work and family. In this budget he proposes a major effort to
     make child care more affordable, accessible and safe, by expanding tax
     credits for middle-income families and for businesses to expand their child
     care resources, assisting parents who want to attend college meet their child
     care needs, and increasing funds with which the Child Care and Development
     Block Grant can help more poor and near poor children. The budget
     proposes an Early Learning Fund, which would provide grants to
     communities for activities that improve early childhood education and the
     quality of childcare for those under age five.
     The President has worked hard to expand health care coverage and improve
     the Nation’s health. The budget gives new insurance options to hundreds of
     thousands of Americans aged 55 to 65 and it advocates bipartisan national

30
legislation that would reduce tobacco use among the young. The President’s
budget proposes initiatives to help patients, families, and care givers cope
with the burdens of long-term care; and it helps reduce barriers to
employment for individuals with disabilities. The budget also enables more
Medicare beneficiaries to receive promising cancer treatments by
participating more easily in clinical trials. And it improves the fiscal soundness
of Medicare and Medicaid through new management proposals, including
programs to combat waste, fraud, and abuse.
The President’s efforts have also enhanced access to, and the quality of,
education and training. The budget takes the next steps by continuing to help
States and school districts reduce class size by recruiting and preparing
thousands more teachers and building thousands more new classrooms. The
President’s budget proposes improving school accountability by funding
monetary awards to the highest performing schools that serve low-income
students, providing resources to States to help them identify and change the
least successful schools, and ending social promotion by funding additional
education hours through programs like the 21st Century Community
Learning Centers. The budget also proposes further increases in the
maximum Pell Grant to help low-income undergraduates complete their
college education and more funding for universal reemployment services to
help train or find jobs for all dislocated workers who need help.
The budget proposes a historic inter-agency Lands Legacy initiative to both
preserve the Nation’s Great Places, and advance preservation of open spaces
in every community. This initiative will give State and local governments the
tools for orderly growth while protecting and enhancing green spaces, clean
water, wildlife habitat and outdoor recreation. The Administration also
proposes a Livability Initiative with a new financing mechanism, Better
America Bonds, to create more open spaces in urban and suburban areas,
improve water quality, and clean up abandoned industrial sites. In addition,
the budget would restore and rehabilitate national parks, forests, and public
lands and facilities; expand efforts to restore and protect the water quality of
rivers and lakes; and better protect endangered species.
The President has worked to bring peace to troubled parts of the world, and
has played a leadership role in Northern Ireland, Bosnia, and most recently
in the Wye River Memorandum on the Middle East. The budget reinforces
America’s commitment to peace in the Middle East by providing for an
economic and military assistance package arising from the Wye River
Memorandum. The work of diplomacy, advancing peace and United States
interests, has inherent dangers, as the death toll from the terrorist attacks on
two U.S. Embassies in Africa last year reminds us. The budget proposes

                                                                               31
     increased funding to ensure the continued protection of American embassies,
     consulates and other facilities, and the valuable employees who work there.
     It supports significant increases in funding for State Department programs to
     address the threats posed by weapons of mass destruction. The budget also
     increases programs that support U.S. manufacturing exports and continues
     our long standing policy of opening foreign markets.

     The mission of our Armed Forces has changed in this post-Cold War era, and
     in many ways it is more complex. Today, the U.S. military must guard against
     major threats to the Nation’s security, including regional dangers like cross-
     border aggression, the proliferation of the technology of weapons of mass
     destruction, transnational dangers like the spread of drugs and terrorism, and
     direct attacks on the U.S. homeland from intercontinental ballistic missiles or
     other weapons of mass destruction. The U.S. Armed Forces are well
     prepared to meet this mission. Military readiness—the ability to engage
     where and when necessary—is razor sharp, and this budget provides
     resources to make sure that it stays that way for years to come. The budget
     provides a long term, sustained increase in defense spending to enhance the
     military’s ability to respond to crises, build for the future through programs
     for weapons modernization, and take care of military personnel and their
     families by enhancing the quality of life, thereby increasing retention and
     recruitment.


     Improving Performance Through Better Management

     A key element in the Administration’s ability to making these investments,
     while balancing the budget, is the reinvention of Government—doing more
     with less. Efforts led by Vice President Gore’s National Partnership for
     Reinvention have streamlined Government, reduced its work force, and
     focused on performance to improve operations and delivery of service. And
     these efforts, by reducing the cost of Government operations, have improved
     the bottom line and contributed to our strong economy.

     Since 1993, the Administration, working with the Congress, has eliminated
     and reduced hundreds of unnecessary programs and projects. The size of
     Government, that is, the actual total of Government spending, has equaled a
     smaller share of GDP than in any year of the previous two Administrations,
     and in 2000 will drop to 19.4 percent of GDP, its lowest level since the early
     1970s. Finally, the Administration has cut the size of the Federal civilian
     work force by 365,000, creating the smallest work force in 36 years and, as
     a share of total civilian employment, the smallest since 1933 (see Chart 5–1).

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                    Chart 5–1. Cuts in Civilian Employment

 FTE CUTS IN THOUSANDS


 400                             ALREADY CUT                                                 PROJECTED
                                                                              365
                                                                                           354
 350                                                                                                     338
                                                                 321

 300
                                                    264
 250

 200                                   185

 150
                         103
 100

  50
             16
    0
           1993          1994         1995         1996         1997         1998          1999         2000

 Note: In 1993, the President pledged to cut the Federal work force by 252,000 full-time equivalent (FTE) positions.
 Simply put, one full-time employee counts as one FTE, and two employees who work half-time also count as one FTE.




The Administration, however, is working to create not just a smaller
Government, but a better one, a Government that best provides services and
benefits to its ultimate customers—the American people. It has not just cut
the Federal work force, it has streamlined layers of bureaucracy. It has not
just reorganized headquarters and field offices, it has ensured that those
closest to the customers can best serve them.
For 2000, the Administration once again is turning its efforts to the next
stage of “reinventing” the Federal Government. It plans to dramatically
overhaul 32 Federal agencies to improve performance in key services, such
as expediting student loan processing and speeding aid to disaster victims. It
also plans to continue tackling critical challenges, such as ensuring that
Government computers can process the year 2000 date change and making
more Government services available electronically.
Under the 1993 Government Performance and Results Act, Cabinet
departments and agencies have prepared individual performance plans that
they will send to Congress with the performance goals they plan to meet in
2000. These plans provided the basis for the second Government-wide

                                                                                                                   33
     Performance Plan which is contained in this budget. In 2000, for the first
     time, agencies will submit to the President and the Congress annual reports
     for 1999 that compare actual and target performance levels and explain any
     difference between them.




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Glossary

  Appropriation
     An appropriation is an act of Congress that enables Federal agencies to
     spend money for specific purposes.
  Authorization
     An authorization is an act of Congress that establishes or continues a
     Federal program or agency, and sets forth the guidelines to which it must
     adhere.
  Balanced Budget
     A balanced budget occurs when total revenues equal total outlays for a
     fiscal year.
  Budget Authority (BA)
     Budget authority is what the law authorizes, or allows, the Federal
     Government to spend for programs, projects, or activities.
  Budget Enforcement Act (BEA) of 1990
     The BEA is the law that was designed to limit discretionary spending
     while ensuring that any new entitlement program or tax cuts did not
     make the deficit worse. It set annual limits on total discretionary spending
     and created “pay-as-you-go’’ rules for any changes in entitlements and
     taxes (see “pay-as-you-go’’).
  Balanced Budget and Emergency Deficit Control Act of 1985
  (Gramm-Rudman-Hollings, or GRH)
     The Balanced Budget and Emergency Deficit Control Act of 1985 was
     designed to end deficit spending. It set annual deficit targets for five
     years, declining to a balanced budget in 1991. If necessary, it required
     across-the-board cuts in programs to comply with the deficit targets. It
     was never fully implemented.
  Budget Resolution
     The budget resolution is the annual framework within which Congress
     makes its decisions about spending and taxes. This framework includes
     targets for total spending, total revenues, and the deficit, as well as

                                                                              35
        allocations, within the spending target, for discretionary and mandatory
        spending.
     “Cap’’
        A “cap’’ is a legal limit on annual discretionary spending.
     Deficit
        The deficit is the difference produced when spending exceeds revenues
        in a fiscal year.
     Discretionary Spending
        Discretionary spending is what the President and Congress must decide
        to spend for the next fiscal year through 13 annual appropriations bills.
        Examples include money for such activities as the FBI and the Coast
        Guard, housing and education, space exploration and highway
        construction, and defense and foreign aid.
     Entitlement
        An entitlement is a program that legally obligates the Federal
        Government to make payments to any person who meets the legal
        criteria for eligibility. Examples include Social Security, Medicare, and
        Medicaid.
     Excise Taxes
        Excise taxes apply to various products, including alcohol, tobacco,
        transportation fuels, and telephone service.
     Federal Debt
        The gross Federal debt is divided into two categories: debt held by the
        public, and debt the Government owes itself. Another category is debt
        subject to legal limit.
        Debt Held by the Public
           Debt held by the public is the total of all Federal deficits, minus surplus,
           over the years. This is the cumulative amount of money the Federal
           Government has borrowed from the public, through the sale of notes
           and bonds of varying sizes and time periods.
        Debt the Government Owes Itself
           Debt the Government owes itself is the total of all trust fund surplus
           over the years, like the Social Security surplus, that the law says must
           be invested in Federal securities.

36
   Debt Subject to Legal Limit
     Debt subject to legal limit, which is roughly the same as gross Federal
     debt, is the maximum amount of Federal securities that may be legally
     outstanding at any time. When the limit is reached, the President and
     Congress must enact a law to increase it.
Fiscal Year
   The fiscal year is the Government’s accounting period. It begins October
   1 and ends on September 30. For example, fiscal 2000 ends September
   30, 2000.
Gramm-Rudman-Hollings
   See Balanced Budget and Emergency Deficit Control Act of 1985.
Gross Domestic Product (GDP)
   GDP is the standard measurement of the size of the economy. It is the
   total production of goods and services within the United States.
Mandatory Spending
   Mandatory spending is authorized by permanent law. An example is
   Social Security. The President and Congress can change the law to
   change the level of spending on mandatory programs—but they don’t
   have to.
“Off-Budget’’
   By law, the Government must distinguish “off-budget’’ programs
   separate from the budget totals. Social Security and the Postal Service
   are “off-budget.’’
Outlays
   Outlays are the amount of money the Government actually spends in a
   given fiscal year.
“Pay-As-You-Go’’
   Set forth by the BEA, “pay-as-you-go’’ refers to requirements that new
   spending proposals on entitlements or tax cuts must be offset by cuts in
   other entitlements or by other tax increases, to ensure that the deficit
   does not rise (see BEA).
Revenue
   Revenue is money collected by the Government.

                                                                         37
     Social Insurance Payroll Taxes
        This tax category includes Social Security taxes, Medicare taxes,
        unemployment insurance taxes, and Federal employee retirement
        payments.
     Surplus
        A surplus is the amount by which revenues exceed outlays.
     Trust Funds
        Trust funds are Government accounts, set forth by law as trust funds, for
        revenues and spending designated for specific purposes.
     Unified Federal Budget
        The unified budget, the most useful display of the Government’s
        finances, is the presentation of the Federal budget in which revenues
        from all sources and outlays to all activities are consolidated.




38
List of Charts and Tables

  List of Charts                                                                                 Page

     What Is the Budget?
       1–1    Government Spending as a Share of GDP, 1998 . . . . . . . . . .                      2
       1–2    Total Government Outlays as a Percent of GDP . . . . . . . . . . .                   3
     Where the Money Comes From—and Where It Goes
       2–1 Family Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        5
       2–2 National Budgeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         6
       2–3    The Federal Government Dollar—Where It Comes From . . . . .                          7
       2–4 Composition of Revenues . . . . . . . . . . . . . . . . . . . . . . . . . .             9
       2–5 Revenues as a Percent of GDP—Comparison With Other
           Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     9
       2–6    The Federal Government Dollar—Where It Goes . . . . . . . . . .                     10
       2–7 On- and Off-Budget Deficit Projections . . . . . . . . . . . . . . . . .               15
     How Does the Government Create a Budget?
       3–1 Major Steps in the Budget Process . . . . . . . . . . . . . . . . . . . .              18
     The Budget Surplus and Fiscal Discipline
       4–1    Past and Future Budget Deficits or Surplus . . . . . . . . . . . . . .              21
       4–2 Outlays as a Percent of GDP . . . . . . . . . . . . . . . . . . . . . . . .            22
       4–3    Total Government Surplus or Deficit as a Percent of GDP . . . .                     24
     The President’s 2000 Budget
       5–1 Cuts in Civilian Employment . . . . . . . . . . . . . . . . . . . . . . . .            33




                                                                                                  39
     List of Tables                                                                          Page

        Where the Money Comes From—and Where It Goes
          2–1 Revenues by Source—Summary . . . . . . . . . . . . . . . . . . . . . .           8
          2–2 Spending Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    12
          2–3 Total Spending by Function . . . . . . . . . . . . . . . . . . . . . . . . .    13
          2–4 Discretionary Spending by Agency . . . . . . . . . . . . . . . . . . . .        14
        Deficits and the Debt
          4–1 Federal Government Financing and Debt. . . . . . . . . . . . . . . .            25




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